February 11, 2011

Smartphone Market Could Become Victim Of Its Own Success

Analysts warn that the mobile industry is going to face risks like congestion choking service at peak times and locations, and operators being forced to hike prices and putting a cap on data use.

They warn that the rapidly growing market is going to become a victim of its own success.

Mobile industry leaders recognize this threat and it will be one of the key questions they address this coming week at their annual gathering.

Over 50,000 people from more than 1,300 companies are set to attend the four-day Mobile World Congress opening Monday in Barcelona, including executives from dozens of top firms.

Smartphones sales have jumped over the past few years and developing applications for them has become a major industry in itself.

However, because each smartphone generates as much as 24 times as much data traffic as a regular mobile phone, the volume of network traffic has exploded. The network firm Cisco is forecasted to grow 26-fold by 2015.

Mobile operators have been hard pressed to keep up with the growth.

"The explosion in data traffic and the strain on networks is beginning to show with service quality already suffering," Torbjoern Sandberg, chief executive of Birdstep mobile connectivity firm, said in a recent statement, according to AFP's Richard Lein.

While spectacular overloading of networks like AT&T in the U.S. and 02 in Britain is rare, users encounter dropped calls and slower service at rush hour still takes place often on all networks.

"Bandwidth congestion will continue to be a serious problem for operators, especially in the most populated areas during peak usage times," Merav Bahat of Flash Networks, a company which helps operators improve network performance, told Lein.

"It will not render smartphones dumb, but it will frustrate users who expect a wireline-like experience on their mobile device," she told AFP.

According to the latest Mobile Trends Report by Allot Communications, video streaming already accounts for 37 percent of mobile data traffic, and Cisco expects video to account for two-thirds of traffic by 2015.

Operators have already begun putting smartphone users on a data diet, either limiting use or slowing data speeds after a certain volume has been reached.

"Unlimited data has already come to an end because most operators realize there isn't sufficient capacity available in the network," said Coleago Consulting CEO Stefan Zehle.

However, Magnus Rehle of Greenwhich Consulting said expensive data diets stunt the development of the market, leaving operators with the early adopters, which are heavy data users rather than a mass subscriber base with different usage patterns.

Mobile operators are also scrambling to add more capacity, but according to recent calculations by network optimization firm Tellabs, they could run themselves into the red in three years trying to build to meet the forecasted data growth.

"Carriers can spend themselves bankrupt well before users run out of hunger for capacity," Tellabs chief executive Rob Pullen told AFP.

The A.T. Kearney consulting firm reported that at current trends mobile operators will end up $28.5 billion short of the amount needed over the next four years to expand their networks to keep up with forecast data growth.

A number of firms like Flash Networks and Tellabs say that the problem is not smartphones but networks, and they offer technology that promises to create intelligent networks that optimize the flow of data, allowing operators to do more with less.

However, A.T. Kearney said improving networks and hiking fees for consumers is unlikely to be sufficient without addressing the video streaming sites who are paying almost nothing to pump huge amounts of data across networks to consumers and have few incentives to compress data.

The consultancy concluded there are "clear structural problems in the economic model" of the fixed and mobile Internet "making it increasingly inefficient and ultimately unsustainable as traffic growth continues."